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Debt lightening may depend on program’s progress

By Sotiris Nikas and Katerina Sokou

The delay in the latest assessment of the Greek streamlining program may be at the forefront of political and financial developments, but in the background the creditors’ stance appears softer on the issue of Greek debt sustainability that will soon return to the negotiating table, allowing for a compromise.

The eurozone and the International Monetary Fund hold the converging view that the Greek debt could be lightened if reforms and privatizations are promoted in Greece. Those least confident in the Greek authorities’ determination to see reforms through believe that a conditional restructuring of the debt would add one more incentive for the opening up of the country’s economy and the improvement of its growth prospects. Another informal proposal concerns the reduction of the debt depending on sell-off revenues.

The solution favored by the eurozone provides only for the extension of maturities and a reduction in interest rates – not a haircut – although that would not suffice for Greece to meet the IMF debt sustainability terms. Until recently, the Fund had insisted on a haircut to the official sector debt, but sources familiar with the IMF’s positions say that the issue “is not black and white, there are various approaches,” thereby leaving a compromise solution open.

The eurozone has committed itself to doing what it can to help Greece render its debt sustainable, provided the bailout program is strictly adhered to.